Nosedive ‘flattening out’ after German production plunged in April

Berlin (dpa) – The coronavirus crisis took a heavy toll on German industry in April, as a key economic survey predicted a continued but less serious decline in the coming months.

Production plunged by 17.9 per cent in April compared to the previous month, according to data released by the Federal Statistical Office (Destatis) on Monday.

The decline was worse than predicted. Economists had forecast a 16.5-per-cent drop.

Compared to the same period last year, production was down by 25.3 per cent, Destatis said.

In March, the agency reported a monthly decline in production of just 8.9 per cent, according to a revised figure, while the drop in February was slightly steeper, at 9.2 per cent.

Germany has made gains in reducing its infection rate, with the Robert Koch Institute for disease control most recently noting a daily rise in cases of 214 nationwide.

Around 184,200 people are known to have caught the novel coronavirus in Germany, 8,674 of whom died.

Provided the country can prevent a second wave of infections, many economists expect German factories to increase production in the second half of the year.

The Munich-based Ifo research institute released its production index on Monday, which showed that the decline is expected to continue over the coming three months, albeit at a slower rate.

The indicator for production expectations rose to minus 20.4 points in May from minus 51.0 points the previous month, the biggest month-on-month increase in the index since German reunification.

But the Ifo’s head of surveys, Klaus Wohlraube, issued a word of caution: “All it means is that the nosedive is now flattening out.”

One positive result – representing optimistic expectations – came for the automotive industry, where the index jumped from minus 41 in April to plus 23 points in May.

The entire month of April was beset with severe restrictions that halted production lines and disrupted supply chains.

Car manufacturing, a key driver in German industry, saw a sharp drop of 74.6 per cent during that month, according to Destatis.

Andrew Kenningham, chief Europe economist at the Capital Economics research institute, also held back on hailing a turnaround for industry, noting that “domestic demand will probably remain sluggish and external demand will be even weaker given that the rest of Europe will be even slower to get back on its feet.”

Already struggling at the start of the year, the pandemic has rattled Germany’s export-focused economy, which slipped into a technical recession in the first quarter of 2020.

The full force of the crisis is expected to hit Europe’s largest economy in the second quarter.

In fact, there was some good news for the first quarter, with Destatis also reporting on Monday that the number of business insolvencies in Germany fell by 3.7 per cent during that period on the year.

According to the government’s own estimate, gross domestic product is expected to slump by 6.3 per cent over the course of 2020, which would be the worst annual recession in the country’s post-World War II history.